El Salvador Economic Outlook

September 10, 2019

Annual economic growth ticked up in the second quarter according to monthly activity estimates, although GDP figures will not be released until 30 September. A surge in construction activity, continued strong growth in the financial services sector and a rebound in merchandise exports all supported Q2’s reading. However, agricultural activity decreased in Q2, partly due to recent dry weather. In addition, remittances growth slowed in Q2 despite a still-tight labor market in the United States, where most remittances originate from, which will have dampened private consumption somewhat. In politics, the Salvadoran and U.S. governments reached an agreement in August to increase cooperation on migration. This could reduce the number of Salvadorans gaining entry into the U.S., hitting future remittance growth.

El Salvador Economic Growth

Overall, the economy should slow this year, partly on a projected slowdown in the U.S., which would weigh on remittance growth and, thus, private consumption. On the other hand, the extension of the TPS program in the United States until at least 2020 does provide some assurance of sustained remittance payments. Our panelists expect GDP growth of 2.3% in 2019, which is unchanged from last month’s forecast, and 1.9% in 2020.

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